Larsen & Toubro Ltd (Q3 FY15) – BUY
CMP Rs1,572, Target Rs1,980, Upside 25.9%
² LT’s consolidated numbers were weaker than expected lower margins in infrastructure segment and higher EBIT loss in the hydrocarbon segment
² The Hydrocarbon segment continued to report losses due to under-recovery, cost overruns and close out costs
² Consolidated order inflow for the quarter remained strong at 19% yoy at Rs346bn, largely contributed by domestic orders. Order book for the consolidated entity stood at Rs2,258bn, up 17% yoy
² Consolidated operating profit margin remained flat on a yoy basis as the impact of operating loss in hydrocarbon segment was offset by higher contribution from the other segment
² Operating margin for the standalone entity was lower due to change in job mix in the infrastructure segment
² Decline in EBIT margin by 107bps in consolidated infrastructure segment was a negative surprise for us
² Net debt increased due to higher working capital requirement in the standalone entity. Working capital continued to remain high due to lower customer advances and stagnant customer payments
² Guidance on margins shrink revised higher from 100-150bps yoy in previous quarter to 150-200bps due to weak hydrocarbon segment
² Sharp correction post the results unwarranted; Stock to bounce back in today’s trading session. Maintain BUY rating with a revised 2-yr price target of Rs1,980
CMP Rs1,572, Target Rs1,980, Upside 25.9%
² LT’s consolidated numbers were weaker than expected lower margins in infrastructure segment and higher EBIT loss in the hydrocarbon segment
² The Hydrocarbon segment continued to report losses due to under-recovery, cost overruns and close out costs
² Consolidated order inflow for the quarter remained strong at 19% yoy at Rs346bn, largely contributed by domestic orders. Order book for the consolidated entity stood at Rs2,258bn, up 17% yoy
² Consolidated operating profit margin remained flat on a yoy basis as the impact of operating loss in hydrocarbon segment was offset by higher contribution from the other segment
² Operating margin for the standalone entity was lower due to change in job mix in the infrastructure segment
² Decline in EBIT margin by 107bps in consolidated infrastructure segment was a negative surprise for us
² Net debt increased due to higher working capital requirement in the standalone entity. Working capital continued to remain high due to lower customer advances and stagnant customer payments
² Guidance on margins shrink revised higher from 100-150bps yoy in previous quarter to 150-200bps due to weak hydrocarbon segment
² Sharp correction post the results unwarranted; Stock to bounce back in today’s trading session. Maintain BUY rating with a revised 2-yr price target of Rs1,980
